CFA Practice Question

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CFA Practice Question

Refer to the graph below. The short-run curve in the graph is called a(n) ______.

A. aggregate supply curve
B. potential output curve
C. firm's supply curve
Correct Answer: A

The aggregate supply curve is horizontal in the short run because most U.S. markets are quantity-adjusting markets.

User Contributed Comments 12

User Comment
Gina the AS has 3 ranges 1) horizontal range (like in the quiz), where the price level remains constant as domestic output varies 2) upsloping range, where price level and real domestic output can vary 3) vertical range, where real domestic output is constant at FE level and only price level can vary
am741 AS: horizontal AD: verticle
sharon oh,..I get it now.
examinee I don't get it. The above curve means that we can have unlimited supply for a given price. Not sure how and when this will happen.
zglacier thanks for Gina. I think she is right.
hagi10 AM741. you could not be more wrong. AD is vertical only if the Aggregate demand is 100 % inelastic which is NEVER.
viannie hmmm, SR supply curve is pretty flat => that is elastic but not like this one which is horizontal! Unless we are talking about renewable resource such as oil supply.
dybacis This would be the Very Short Run Aggregate Supply curve. Firms can react to greater demand in a very short time by increasing labor hours or producing at full capacity but price can't be adjusted that fast so the curve is horizontal
choas69 this is not short run aggregate supply
sshetty2 the idea is that price is inelastic in the short-run
Huricane74 Agree with @hagi10, dybacis & choas69
mikus "short-run aggregate supply curve typically slopes upward to the right" - your answer here is contradicting notes.
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